New property owners held liable for defaulters’ dues

This is an Article from the Moneyweb website.

The comments in the Comment Section appearing below the article on that website are extremely illuminating and there are two specific aspects that I would like to highlight.

1. Why would anyone invest in property in a municipality where the Clearance Certificate issued by the municipality is basically worthless as an indication of the status of the account?

2. Why are the relevant municipal officials not being held in Contempt of Court?

If you are experiencing similar problems, remember that for all of your property questions, Shepperson Attorneys is the answer!

Gareth Shepperson
Commercial and Property Attorney

New property owners held liable for defaulters’ dues

Tshwane tries to make new owner pay the old owner’s municipal account.

The City of Tshwane Metropolitan Municipality (CTMM) recently refused to supply basic municipal services, such as electricity and water to a wheelchair-bound Fredah Kekana, a Tshwane homeowner.

It demanded that she pay the arrears owed to it by the previous owner of her property. The CTMM was unmoved by Kekana’s disability and the fact that the debt that it was demanding was not hers in the first place.

How municipal rates clearances work

Before any property can be transferred from one owner to another, the outstanding amounts owing to the local authority for the preceding two years must be paid in full. If this is not done, a municipal rate clearance certificate cannot be obtained. Without the rates clearance certificate, the new owner cannot take transfer. This is according to section 118(1) of the Municipal Systems Act (MSA).

The purchaser of a property should rightfully be able to rely on a rates clearance certificate given to the previous owner as absolute proof that all arrears have been paid.

Not according to CTMM, which now seeks to hold new property owners accountable for municipal debts they did not incur. The CTMM relies on an interpretation of the “security” provision, contained in section 118(3) of the MSA. It states, “An amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property.”

Fredah Kekana

A Mr & Mrs Oosthuizen, the previous owners of Kekana’s home, northwest of Pretoria, were unable to repay loan to S A Home Loans, and so the Sheriff sold the property in terms of a court order. Kekana paid R668 000 for the property. In October last year, prior to transfer taking place, Tshwane suddenly demanded that she pay it R56 100.

New Ventures

Kekana sought the assistance of Johannesburg-based New Ventures Consulting Services. (NVCS), a firm that specialises in auditing municipal accounts and ensuring clients pay municipalities what is owed rather than what is claimed by them. Municipal accounts are notoriously inaccurate and are often hugely overinflated.

Incorrect calculation

NVCS analysed the CTMM rates and service charges account presented to Kekana, and found an overcharge of R36 460. Kekana only owed R19 650. They presented their analysis to the CTMM, which approved the lesser figure and, in December last year, issued a rates clearance certificate to the Sheriff. This meant that the property could now be transferred. Having issued the rates clearance certificate, the CTMM then refused to enter into a consumer agreement with Kekana on the grounds that Mr & Mrs Oosthuizen owed it R36 500 (being the R56 000 less the R19 000 paid to obtain the clearance certificate).

A consumer agreement entitles you to municipal services.

High Court application

NVCS had three other clients who were in a similar predicament. NVCS indemnifies its clients against charges, whom it says do not owe the municipality the amounts claimed. It took its clients’ case to the North Gauteng High Court (NGHC) on an urgent basis. Relying on Section 38 of the South African Constitution, it told the court that it had decided to act on behalf of a class of similarly “affected municipal service consumers.”

NVCS Director, Costa Livanos told the court, “These consumers are being denied municipal services by the municipality's unlawful implementation of a practice of refusing to enter into consumer agreements with new owners on the basis of an outstanding historical debt incurred by previous owners.”

“As will appear from this affidavit, the Municipality's failure to render municipal services appears to be based on financial issues, and its failure to act diligently and expeditiously against previous defaulters. The applicants herein cannot lawfully be held liable for amounts due by such defaulters.”

Livanos also told the court that the CTMM had failed to ask the Sheriff to recover all arrears owed by the Oosthuizens.

Court records reveal that NVCS had repeatedly reminded the CTMM that it was the metro’s legal responsibility to collect all other historical debt on the property. CTMM did not do so, and has now tried to make it Kekana’s problem.

Court order

On February 18 2014, CTMM consented to a court order to immediately provide municipal services to Kekana and the other applicants.

Kekana handed the court order to CTMM official, Tienka Abbott, who referred it to her superior, Ronny Shilenge.

According to Kekana, Shilenge was dismissive of the court order. He apparently said Kekana must pay R5 000 of the Oosthuizens debt, and then enter into an agreement to pay off the balance of their debt in instalments. Abbott told her that only then would Shilenge allow her to enter into a consumer agreement with the CTMM.

NVCS attempted to discuss the effect of the court order with CTMM officials. They refused to do so. In order to resolve the impasse, NVCS paid R5 000 on Kekana’s behalf under protest in order to ensure that municipal services were restored to her.

Municipal deception

Early last month the CTMM sent Kekana an acknowledgment of debt (AOD). She was required to acknowledge liability for an amount of R37 760, which it said that she had to pay off over 48 months. Moneyweb has seen her municipal account of the same date. It reflects a credit balance of R1 775.

Kekana believes that the CTMM attempted to deceive her. The matter will be back in the High Court later this year.

No response to Moneyweb’s request for comment had been received from Abbott or Shilenge at the time of publication.

CTMM spokesman, Blessing Manale, told Moneyweb: “The City has invoked its right not to comment on the matter as it involves possible litigation. We therefore confirm that we are aware of this matter and both our finance and legal departments are attending to it.”


Gareth Shepperson
Commercial and Property Attorney


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